Overview
Stock Connect, the landmark mutual market access programme linking the Hong Kong and Mainland China equity markets, has pioneered greater accessibility and investor choice, resulting in record trading volumes. As international investors’ participation in China’s onshore market grows, so too do the post-trade complexities. Market participants have been deploying tailored solutions to improve post-trade efficiencies, but the lack of interoperability amongst these solutions has created additional operating, processing and counterparty risks.
In collaboration with The Depository Trust & Clearing Corporation (DTCC), Hong Kong Exchanges and Clearing Limited (HKEX) is launching HKEX Synapse, a new integrated settlement platform, to complement the existing post-trade infrastructure for Northbound Stock Connect. With the use of DAML smart contract technology, the solution aims to standardise and streamline post-trade workflows, maximising connectivity and efficiencies in a transparent and secure manner.
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HKEX is pleased to welcome the first group of participants to join its pilot programme for HKEX Synapse.
As part of the pilot programme, market participants, in their respective roles that include asset managers, brokers, custodians, and clearing participants, will take part in workshops and testing of the Synapse platform. The testing programme will help to further enhance HKEX Synapse’s design and features, ahead of its launch targeted in 2023.
| Pilot Programme Participants* |
|---|
| Bank of China (Hong Kong) |
|
BNP Paribas |
| China Asset Management (Hong Kong) Limited |
|
Citibank N.A. |
|
CSOP Asset Management Limited |
| HSBC |
| Invesco Hong Kong Limited |
| Mirae Asset Global Investments |
| Mondrian Investment Partners |
| Northern Trust |
| Standard Chartered Bank (Hong Kong) Limited |
| State Street |
|
The Bank of New York Mellon |
*Names are organised in alphabetical order and this list will be updated periodically
| Stock Connect Challenges | |
|---|---|
| Bespoke processes within tight settlement window | Stock Connect is a T+0 market, but is integrated into the established settlement flow designed for a T+2 market. Various bespoke solutions have been introduced to address market needs. |
|
Operational risk |
Multiple bespoke solutions, many with manual processes, increase the processing burden and operational risks. |
|
Complexity due to low transparency |
Participants have no real-time visibility into the settlement status, reducing the time they have to resolve exceptions. |
|
Scalability |
Lack of standard processes and manual workflow mean scalability is an issue; further index inclusion increases risks and may limit access. |
|
Barrier to participation |
Participants may be discouraged from participating in the Stock Connect market due to the additional risks and costs arising from bespoke solutions. |
The Solution: HKEX Synapse
HKEX Synapse, an optional service for Northbound Stock Connect, provides a standardised and centralised platform that generates a single source of truth for settlement instruction workflow, enabling the enrichment of trades with Standing Settlement Instructions from DTCC’s central matching solution - CTMTM. It then simultaneously creates settlement instructions to all parties along the settlement chain, facilitating concurrent processing, providing greater efficiency and transparency to Stock Connect’s market participants, while connecting them to a more seamless post-trade workflow.
With the introduction of HKEX Synapse, the trading flows between CCEP and the Stock Exchange of Hong Kong (SEHK) and the matching, clearing and settlement schedules within CCASS of Hong Kong Securities Clearing Company (HKSCC) remain unchanged. For market participants who do not subscribe to HKEX Synapse’s services, their clearing and settlement processes remain unchanged.
| HKEX Synapse - Value Propositions | |
|---|---|
| Leverage existing connectivity |
Leverage open source DAML smart contract Technology. Using APIs for flexible connectivity to Synapse (ISO20022) allows for efficient integration. |
|
Standardises settlement initiation flow |
Synapse introduces a standardised settlement initiation workflow, which reduces operational risk, while improving scalability. |
|
Improves transparency |
Synapse provides instantaneous status updates, allowing for faster processing and improved exception management. |
|
Encourages Stock Connect adoption |
Standardising workflows and reducing the risks and costs associated with bespoke solutions will alleviate compliance burdens and encourage new entrants to the Stock Connect market. |
|
Leverages new technology and latest SWIFT standards |
Synapse leverages open source DAML smart contract technology. Using APIs for flexible connectivity to Synapse (adhering to ISO20022 standards) allows for efficient integration, while also moving the market into the future. |
HKEX Synapse high level workflow
| Post Trade Product Development Email: posttrade-cd@hkex.com.hk |
DTCC Email: askdtccasia@dtcc.com |
